ex107_071108.htm


     

     

    
      

      

    

    Exhibit
10.7

     

     

     

    MODIFICATION
AGREEMENT

     

    This
MODIFICATION AGREEMENT
(the “Modification
Agreement”) is made effective as of July 8, 2008, between FRANKLIN COVEY CO., a Utah
corporation (“Borrower”), whose address is
2200 West Parkway Blvd., Salt Lake City, Utah 84119, and JPMORGAN CHASE BANK, N.A., a
national banking association (“Lender”), whose address
is 80 West Broadway, Suite 200, Salt Lake City, Utah 84101.

     

    RECITALS:

     

    A. Lender
has previously extended to Borrower a revolving line of credit loan (the “Loan”) in the original
maximum principal amount of EIGHTEEN MILLION AND NO/100 DOLLARS ($18,000,000.00)
pursuant to a Revolving Line of Credit Agreement dated as of March 14, 2007 (as
amended and modified from time to time, the “Loan Agreement”), and
evidenced by a Secured Promissory Note dated March 14, 2007 (as amended and
modified from time to time, the “Note”).  Capitalized
terms used herein without definition shall have the meanings given to such terms
in the Loan Agreement and Note.

     

    B. Repayment
of the Loan is guaranteed pursuant to the terms of a Repayment Guaranty dated as
of March 14, 2007 (as amended and modified from time to time, the “Guaranty”), executed by FRANKLIN COVEY PRINTING, INC.,
a Utah corporation, FRANKLIN
DEVELOPMENT CORPORATION, a Utah corporation, FRANKLIN COVEY TRAVEL, INC., a
Utah corporation, FRANKLIN
COVEY CATALOG SALES, INC., a Utah corporation, FRANKLIN COVEY CLIENT SALES,
INC., a Utah corporation, FRANKLIN COVEY PRODUCT SALES,
INC., a Utah corporation, FRANKLIN COVEY SERVICES,
L.L.C., a Utah limited liability company, and FRANKLIN COVEY MARKETING,
LTD., a Utah limited partnership (individually and collectively, as the
context requires, and jointly and severally, “Guarantor”), in favor of
Lender.

     

    C. The Loan
is secured by, among other things, (i) a Security Agreement dated as of March
14, 2007 (as amended and modified from time to time, the “Security Agreement”),
executed by Borrower and Guarantor, as “debtor,” in favor of JPMORGAN CHASE BANK, N.A., a
national banking association, not in its individual capacity, but solely as
collateral agent (in such capacity, the “Collateral Agent”) for Lender
and ZIONS FIRST NATIONAL
BANK, a national banking association (“Zions”); (ii) a Pledge and
Security Agreement dated as of March 14, 2007 (as amended and modified from time
to time, the “Pledge
and Security
Agreement”), executed by Borrower, as “pledgor,” in favor of Collateral
Agent; and (iii) an Account Control Agreement dated as of March 14, 2007 (as
amended and modified from time to time, the “Account Control Agreement”), executed by
Borrower and Guarantor, as “debtor,” Collateral Agent, Lender and Zions, as
“creditor,” and Zions, as “bank” (collectively, the “Security
Documents”).

     

    D. Lender,
Zions and Collateral Agent have entered into an Intercreditor Agreement dated as
of March 14, 2007 (as amended or modified from time to time, the “Intercreditor Agreement”),
the terms of which were acknowledged and agreed to by Borrower and
Guarantor.

     

    E. The Loan
Agreement, the Note, the Guaranty, the Security Documents, the Intercreditor
Agreement, and all other agreements, documents, and instruments governing,
evidencing, securing, guaranteeing or otherwise relating to the Loan, as
modified in this Modification Agreement, are sometimes referred to individually
and collectively as the “Loan
Documents.”  All capitalized terms used herein and not
otherwise defined shall have the meanings given to such terms in the Loan
Agreement.

     

    F. Borrower
and/or one or more of the Guarantors have sold substantially all of the assets
of Borrower’s Consumer Solutions Business Unit (the “Asset Sale”) to a third-party
purchaser (the “Purchaser”) pursuant to one
or more written agreements (the “Asset Sale
Documents”).  None of the assets to be sold in the Asset Sale
include any of the Pledged Securities.  Borrower has acquired an
approximately nineteen and one-half percent (19.5%) ownership interest in
Purchaser, such that Purchaser will not be considered a Subsidiary of Borrower
under the Loan Documents.

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    G. Upon or
prior to the closing of the Asset Sale, the revolving line of credit loan made
by Zions to Borrower in the maximum principal amount of up to $7,000,000.00 (the
“Zions Loan”) shall be
irrevocably terminated (the “Zions Loan
Termination”).

     

    H. As a
result of the Asset Sale, Borrower has proposed to dissolve each of the
following Subsidiaries: FRANKLIN COVEY SERVICES,
L.L.C., a Utah limited liability company, and FRANKLIN COVEY MARKETING,
LTD., a Utah limited partnership (collectively, the “Dissolved
Guarantors”).

     

    I. Subject
to the terms and conditions contained herein, Borrower, Guarantor, and Lender
now desire to modify the Loan Documents to: (i) approve an increase to the
maximum principal amount of the Loan, effective as of the date hereof, from
$18,000,000.00 to $25,000,000.00 (the “Loan Amount Increase”); (ii)
approve a subsequent reduction to the maximum principal amount of the Loan,
effective as of June 30, 2009, from $25,000,000.00 to $15,000,000.00 (the “Loan Amount Reduction”);
(iii) increase the interest rate applicable under the Loan Documents from the
LIBO Rate in effect from time to time plus 1.10% per annum to LIBO Rate in
effect from time to time plus 1.50% per annum (the “Interest Rate Increase”);
(iv) consent to the dissolution of the Dissolved Guarantors and release the
Dissolved Guarantors and any Collateral owned by the Dissolved Guarantors from
the Security Documents; and (v) remove any references to Zions, the Zions
Loan, and the Zions Loan Documents, except that Zions, as the depository bank,
shall continue to be a party in such capacity to the Account Control
Agreement.

     

    AGREEMENT:

     

    For good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower, Guarantor and Lender agree as follows:

     

    1. ACCURACY
OF RECITALS.  Each of Borrower and each Guarantor acknowledges
the accuracy of the Recitals which are incorporated herein by
reference.

     

    2. MODIFICATION
OF LOAN DOCUMENTS. The Loan Documents are modified as
follows:

     

    (a) Loan Amount Increase and
Subsequent Reduction.

     

    (1)           Loan
Agreement.  The definition of “Loan Amount” set forth in
Section 1.1 of the Loan Agreement is hereby amended and restated in its entirety
to read as follows:

     

    “Loan Amount” means the amount
of up to TWENTY-FIVE MILLION AND NO/100 DOLLARS ($25,000,000.00), plus any sum
in addition thereto advanced by Lender in its sole and absolute discretion in
accordance with the Loan Documents, to be disbursed pursuant to the terms and
conditions of this Agreement; provided, however, that
effective as of June 30, 2009, the aforementioned amount shall be reduced to
FIFTEEN MILLION AND NO/100 DOLLARS ($15,000,000.00).

     

    (2)           Note.  The
reference to “$18,000,000.00” in the heading of the Note is hereby amended to
read “$25,000,000.00”; provided however, that
effective as of June 30, 2009, the aforementioned amount shall be reduced to
“$15,000,000.00”.  In addition, the reference in Section 1 of the Note
to “EIGHTEEN MILLION AND NO/100 DOLLARS ($18,000,000.00)” is hereby amended to
read “TWENTY-FIVE MILLION AND NO/100 DOLLARS ($25,000,000.00)”; provided, however, that
effective as of June 30, 2009, the aforementioned amount shall be reduced to
“FIFTEEN MILLION AND NO/100 DOLLARS ($15,000,000.00)”.

     

    An
original of this Modification Agreement may be attached to the original Note as
an allonge and made a part of the Note, provided, however, that
failure to attach an original of this

     


    
      
         


      

      
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    Modification
Agreement as an allonge to the Note shall not impact the effectiveness of this
Modification Agreement and this Modification Agreement shall nonetheless be
valid, binding and enforceable.

     

    (b) Interest Rate
Increase.  The definition of “Interest Rate” set forth in
Section 1.1 of the Loan Agreement is hereby amended and restated in its entirety
to read as follows:

     

    “Interest Rate” means a
variable rate equal to the LIBO Rate in effect from time to time plus One and
One-Half Percent (1.50%) per annum.

     

    (c) Dissolved
Guarantors.  Lender and Collateral Agent hereby consent to the
dissolution of the Dissolved Guarantors and hereby release the Dissolved
Guarantors and any Collateral owned by the Dissolved Guarantors from the
Guaranty and the Security Documents, and all references in the Loan Documents to
any of the Dissolved Guarantors are hereby deleted and of no further force or
effect.

     

    (d) Zions Loan
Termination.  Provided that Borrower has delivered to Lender
the information required by Section 7(d) hereof, all
references in the Loan Documents to Zions as a “Creditor” or a “Lender”, the
Zions Loan, or the Zions Loan Documents are hereby deleted and of no further
force or effect.  Notwithstanding the foregoing, Zions, as the
depository bank, shall continue to be a party in such capacity to the Account
Control Agreement.

     

    (e) Intercreditor
Agreement;
References to Collateral Agent.  The Intercreditor Agreement
shall remain in effect solely to preserve the appointment of Collateral Agent as
collateral agent for Lender, but any agreements, representations, or other
provisions made by Zions to or for the benefit of Lender or Collateral Agent, or
by Lender to or for the benefit of Zions, are hereby deleted and of no further
force or effect.  In addition, any reference in the Loan Documents to
the Collateral Agent are hereby deleted and of no further force or
effect.

     

    (f) Conforming
Modifications.  Each of the Loan Documents is modified to be
consistent herewith and to provide that it shall be a default or an Event of
Default thereunder if Borrower shall fail to comply with any of the covenants of
Borrower herein or if any representation or warranty by Borrower herein or by
any guarantor in any related Consent and Agreement of Guarantor(s) is materially
incomplete, incorrect, or misleading as of the date hereof.  In order
to further effect certain of the foregoing modifications, Borrower and Guarantor
agree to execute and deliver such other documents or instruments as Lender
reasonably determines are necessary or desirable.

     

    (g) References.  Each
reference in the Loan Documents to any of the Loan Documents shall be a
reference to such document as modified herein or as modified on or about the
date hereof.

     

    3. RATIFICATION
OF LOAN DOCUMENTS AND COLLATERAL. The Loan Documents are ratified
and affirmed by Borrower and shall remain in full force and effect as modified
herein.  Any property or rights to or interests in property granted as
security in the Loan Documents shall remain as security for the Loan and the
obligations of Borrower in the Loan Documents.

     

    4. FEES AND
EXPENSES.

     

    (a) Fees and
Expenses.  In consideration of Lender’s agreement to amend the
Loan Documents as set forth herein, and in addition to any other fees or amounts
payable by Borrower hereunder, Borrower has agreed to pay to Lender (i) all
legal fees and expenses incurred by Lender in connection herewith; and (ii) all
other costs and expenses incurred by Lender in connection with executing this
Modification Agreement and otherwise modifying the Loan
Documents.  Borrower acknowledges and agrees that such fees are fully
earned and nonrefundable as of the date this Modification Agreement is executed
and delivered by the parties hereto.

     


    
      
         


      

      
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    (b) Method of
Payment.  Such fees shall be paid by Borrower to Lender on the
date hereof or at such later date as such fees, costs and expenses are incurred
by Lender.  Borrower and Lender agree and acknowledge that the
foregoing shall not relieve Borrower of its obligation to make future monthly
payments of interest and other amounts as required under the terms of the
Loan.

     

    5. BORROWER
REPRESENTATIONS AND WARRANTIES.  Each of Borrower and Guarantor
represents and warrants to Lender:  (a) No default or event of default
under any of the Loan Documents as modified herein, nor any event, that, with
the giving of notice or the passage of time or both, would be a default or an
event of default under the Loan Documents as modified herein has occurred and is
continuing; (b) There has been no material adverse change in the financial
condition of Borrower or Guarantor or any other person whose financial statement
has been delivered to Lender in connection with the Loan from the most recent
financial statement received by Lender; (c) Each and all representations and
warranties of Borrower and Guarantor in the Loan Documents are accurate on the
date hereof; (d) Neither Borrower nor Guarantor has any claims, counterclaims,
defenses, or set-offs with respect to the Loan or the Loan Documents as modified
herein; (e) The Loan Documents as modified herein are the legal, valid, and
binding obligation of Borrower, enforceable against Borrower in accordance with
their terms; (f) Borrower is validly existing under the laws of the State of its
formation or organization, has not changed its legal name as set forth above,
and has the requisite power and authority to execute and deliver this
Modification Agreement and to perform the Loan Documents as modified herein; (g)
The execution and delivery of this Modification Agreement and the performance of
the Loan Documents as modified herein have been duly authorized by all requisite
action by or on behalf of Borrower; and (h) This Modification Agreement has been
duly executed and delivered on behalf of Borrower.

     

    6. BORROWER
COVENANTS. Borrower and Guarantor covenant with Lender:

     

    (a) Each of
Borrower and Guarantor shall execute, deliver, and provide to Lender such
additional agreements, documents, and instruments as reasonably required by
Lender to effectuate the intent of this Modification Agreement.

     

    (b) Each of
Borrower and Guarantor fully, finally, and forever releases and discharges
Lender and its successors, assigns, directors, officers, employees, agents, and
representatives from any and all actions, causes of action, claims, debts,
demands, liabilities, obligations, and suits, of whatever kind or nature, in law
or equity, that either Borrower or Guarantor has or in the future may have,
whether known or unknown, (i) in respect of the Loan, the Loan Documents, or the
actions or omissions of Lender in respect of the Loan or the Loan Documents and
(ii) arising from events occurring prior to the date of this Modification
Agreement.

     

    (c) Contemporaneously
with the execution and delivery of this Modification Agreement, Borrower has
paid to Lender all of the internal and external costs and expenses incurred by
Lender in connection with this Modification Agreement (including, without
limitation, inside and outside attorneys, appraisal, appraisal review,
processing, title, filing, and recording costs, expenses, and
fees).

     

    (d) On or
prior to the execution and delivery of this Modification Agreement, each of
Borrower and Guarantor shall have executed and delivered, or caused to be
executed and delivered, to Lender, each in form and substance satisfactory to
Lender, such other documents, instruments, resolutions, subordinations, and
other agreements as Lender may require in its sole discretion.

     

    7. EXECUTION
AND DELIVERY OF AGREEMENT BY LENDER. Lender shall not be bound by
this Modification Agreement until (a) Lender has executed and delivered this
Modification Agreement to Borrower and Guarantor, (b) each of Borrower and
Guarantor has performed all of the obligations of Borrower and Guarantor,
respectively, under this Modification Agreement to be performed
contemporaneously with the execution and delivery of this Modification
Agreement, if any, (c) Borrower has paid all fees and costs required under Section 4 hereof, and (d) the Zions
Loan Termination shall have been completed and Lender shall have received
evidence of the same which is reasonably acceptable to Lender.

     


    
      
         


      

      
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    8. INTEGRATION,
ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR WAIVER. The
Loan Documents as modified herein contain the complete understanding and
agreement of Borrower, Guarantor and Lender in respect of the Loan and supersede
all prior representations, warranties, agreements, arrangements, understandings,
and negotiations.  No provision of the Loan Documents as modified
herein may be changed, discharged, supplemented, terminated, or waived except in
a writing signed by the parties thereto.

     

    9. BINDING
EFFECT. The Loan Documents, as modified herein, shall be binding
upon and shall inure to the benefit of Borrower, Guarantor and Lender and their
successors and assigns; provided, however, neither
Borrower nor Guarantor may assign any of its rights or delegate any of its
obligations under the Loan Documents and any purported assignment or delegation
shall be void.

     

    10. CHOICE OF
LAW. THIS MODIFICATION AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF UTAH WITHOUT GIVING EFFECT TO CONFLICT OF LAWS
PRINCIPLES.  THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING
IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED
AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF SALT
LAKE, STATE OF UTAH OR, AT THE SOLE OPTION OF LENDER, IN ANY OTHER COURT IN
WHICH LENDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT
MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY.  EACH OF BORROWER
AND LENDER WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH
MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO
THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 10.

     

    11. COUNTERPART
EXECUTION.  This Modification Agreement may be executed in one
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same document.  Signature pages
may be detached from the counterparts and attached to a single copy of this
Modification Agreement to physically form one document. Receipt by the Lender of
an executed copy of this Modification Agreement by facsimile shall constitute
conclusive evidence of execution and delivery of the Modification by the
signatory thereto.

     

     

     

     

    [Remainder
of Page Intentionally Left Blank]


    
      
         


      

      
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    DATED as
of the date first above stated.

     

     

     

    
      	
              FRANKLIN
      COVEY CO.

              a
      Utah corporation

               

               

            
	
              By:

            	 
      /s/ Stephen D. Young
	
              Name:

            	
              Stephen
      D. Young

            
	
              Title:

            	
              Chief
      Financial Officer

               

            
	 
      	
              “Borrower”

            
	
               

               

              FRANKLIN
      COVEY PRINTING, INC.

              a
      Utah corporation

               

               

            
	
              By:

            	 
      /s/ Stephen D. Young
	
              Name:

            	
              Stephen
      D. Young

            
	
              Title:

            	
              Chief
      Financial Officer

               

               

            
	
              FRANKLIN
      DEVELOPMENT CORPORATION

              a
      Utah corporation

               

               

            
	
              By:

            	 
      /s/ Stephen D. Young
	
              Name:

            	
              Stephen
      D. Young

            
	
              Title:

            	
              Chief
      Financial Officer

               

               

            
	
              FRANKLIN
      COVEY TRAVEL, INC.

              a
      Utah corporation

               

               

            
	
              By:

            	 
      /s/ Stephen D. Young
	
              Name:

            	
              Stephen
      D. Young

            
	
              Title:

            	
              Chief
      Financial Officer

               

               

            
	
              FRANKLIN
      COVEY CATALOG SALES, INC.

              a
      Utah corporation

               

               

            
	
              By:

            	 
      /s/ Stephen D. Young
	
              Name:

            	
              Stephen
      D. Young

            
	
              Title:

            	
              Chief
      Financial Officer

            


    

     

     

    
 

    
      
         


      

      
         


        
          

        

      

      
         


      

    


    

      
        	
                FRANKLIN
      COVEY CLIENT SALES, INC.

                a
      Utah corporation

                 

                 

              
	
                By:

              	 
      /s/ Stephen D. Young
	
                Name:

              	
                Stephen
      D. Young

              
	
                Title:

              	
                Chief
      Financial Officer

                 

                 

              
	
                FRANKLIN
      COVEY PRODUCT SALES, INC.

                a
      Utah corporation

                 

                 

              
	
                By:

              	 
      /s/ Stephen D. Young
	
                Name:

              	
                Stephen
      D. Young

              
	
                Title:

              	
                Chief
      Financial Officer

                 

                 

              
	
                FRANKLIN
      COVEY SERVICES, L.L.C.

                a
      Utah limited liability company

                 

                 

              
	
                By:

              	
                FRANKLIN
      COVEY CLIENT SALES, INC.

                a
      Utah corporation, its member

                 

                 

              
	
                By:

              	 
      /s/ Stephen D. Young
	
                Name:

              	
                Stephen
      D. Young

              
	
                Title:

              	
                Chief
      Financial Officer

                 

                 

              
	
                By:

              	
                FRANKLIN
      DEVELOPMENT CORPORATION

                a
      Utah corporation, its member

                 

                 

              
	
                By:

              	 
      /s/ Stephen D. Young
	
                Name:

              	
                Stephen
      D. Young

              
	
                Title:

              	
                Chief
      Financial Officer

                 

                 

              
	
                FRANKLIN
      COVEY MARKETING, LTD.

                a
      Utah limited partnership

                 

                 

              
	
                By:

              	
                FRANKLIN
      DEVELOPMENT CORPORATION

                a
      Utah corporation, its general partner

                 

                 

              
	
                By:

              	 
      /s/ Stephen D. Young
	
                Name:

              	
                Stephen
      D. Young

              
	
                Title:

              	
                Chief
      Financial Officer

                 

              
	 
      	
                “Guarantor”

              


      


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      
        	
                JPMORGAN
      CHASE BANK, N.A.

                a
      national banking association

                 

                 

              
	
                By:

              	 
      /s/ Tony C. Nielsen
	
                Name:

              	
                Tony
      C. Nielsen

              
	
                Title:

              	
                Senior
      Vice President

                 

              
	 
      	
                “Lender”